In the last several months, millions of Americans have directly experienced the financial impact of the COVID-19 pandemic and many have found themselves without a savings cushion to fall back on. The pandemic has amplified the widespread financial insecurity and lack of emergency savings that existed long before the COVID-19 crisis began when nearly 40% of Americans said they would struggle to handle a $400 unexpected expense.
Unsurprisingly, the pandemic has had the greatest impact on those who were already in a financially vulnerable position. Pre-pandemic, building short-term liquid savings had been especially challenging for people of color, households living on lower incomes, and other groups that disproportionately experience income volatility, including gig workers.
Gig Workers and the Workers Strength Fund
According to a survey from AppJobs, almost 70% of gig workers said they now have no income, and only 23% have some savings. Pre-pandemic, gig work was estimated to make up a tenth to a third of the American labor market. The rise of gig work has exacerbated income volatility, especially for low-income workers. Not only do gig workers lack access to benefits tied to traditional employment, such as paid sick leave and health insurance, but the social safety net has not evolved to address their financial needs. All of these factors have diminished low-income gig workers’ ability to manage unexpected expenses, making financial security elusive.
It is against this backdrop–in the relative economic stability of 2019–that Commonwealth partnered with the Design Sprint for Social Change team, an initiative from The Workers Lab, to develop the Workers Strength Fund (WSF). Together, we investigated how an emergency grant with limited conditions could support workers’ ability to manage unexpected expenses and pursue financial security. The team elected to distribute emergency cash grants because they offer a distinct approach to managing financial volatility: they are immediate, versatile, available to anyone, and leave no debt. Because recent studies have shown that more than 60% of Americans are unable to cover an unexpected $1,000 expense, we decided to offer gig workers one or more grants that could total up to $1,000 over the course of a year.
This nearly two-year effort, which ended last year (a new report detailing our findings is forthcoming later this month), offers early insight into how low-income gig workers navigate unexpected expenses and how emergency grants could impact this financial challenge. In many ways, the Workers Strength Fund research has taken on new meaning in the context of COVID-19 and provides several relevant insights that are more important than ever in light of this global health and financial crisis:
There can be a substantial positive psychological impact
Emergency cash grants can have profound positive psychological impacts by giving people in crisis the ability to manage their changed circumstances.
Different financial circumstances present different types of emergencies
When income loss or volatility leaves a household struggling to stay afloat, regular expenses such as rent, utilities, or groceries can quickly become emergencies. This affects both the impact of the grant funds and that of any additional financial challenges that occur unexpectedly.
The amount of cash matters
A gap in the amount of cash provided compared with the size of the financial emergency can significantly diminish the material impact of assistance.
The act of trust matters
Allowing applicants to make their own determination of what constitutes an emergency – for example, by not requiring documentation and delivering fast turnaround time – exhibits trust in the applicants, which generates even higher positive psychological impact.
Fast, streamlined cash distribution from a trustworthy source is important
Assistance provided quickly in a trustworthy way, such as through a channel from which recipients already get money, generates goodwill and trust, which can affirm shared purpose and build social cohesion.
In this time of widespread financial precarity, rapid response tools offered by the public and private sector–such as the CARES Act, local and state grants for rent and other emergencies, or employee hardship funds, to name a few–play an important role in addressing financial vulnerability.
What’s Next
The WSF research showed that emergency cash supports workers in reaching financial security if it is implemented with a clear understanding of the problem it is solving, for whom, when and how. Given the limitations of its sustainability at scale, the next phase of our work will focus on the role emergency cash can play in conjunction with other financial tools to build financial security for lower-income workers. We will be exploring how it might be coupled with emergency savings, employer-sponsored loans, debt restructuring, credit building, and other products. This work will be a step towards developing a financial security toolbox that is customizable to best meet the needs of lower wage workers on their path from financial vulnerability to financial security and ultimately, to wealth building.
Download our full report on the Workers Strength Fund here.
To learn more about Commonwealth’s work on emergency cash, email Jerome Barnes at info@buildcommonwealth.org or be the first to learn about our new research by signing up for our newsletter.